According to the Organisation for Economic Co-operation and Development, the UK may suffer from the largest economic downturn among the major economies as a result of the current conflict in Iran.
Now, the organization expects that UK’s economy will grow only by 0.7% in this year. It had previously predicted an even higher growth rate, of 1,2%. The sharp decline in growth is due to the increasing global unrest and higher energy prices.
The rising inflation adds more pressure
The UK’s inflation is expected to rise as well. The OECD has now revised its estimate to 4% for this year. It was previously estimated at 2.5%. Even though inflation could ease down to 2,6% by 2027 it would still be higher than expected.
Only the United States will likely have a higher rate of inflation than Britain. Only Italy will have a weaker growth in the economy.
Energy Crisis Driving Uncertainty in the Economy
Conflict has caused disruptions in global energy supply. Oil and gas prices are now soaring worldwide. The UK is already feeling the effects of higher energy prices. The cost of fuel and heat has increased.
According to economists, if the energy price remains high, then economic growth is likely to slow down. Inflation will also remain high, which makes it difficult for central banks reduce interest rates.
The situation could worsen if food supply risks are not addressed
The OECD also expressed concerns regarding agriculture. Due to the war, fertilizer prices are up. Farmers could see lower yields if this trend persists. Global food prices could rise next year as a result.
Impact Global Beyond the UK
Economic impact does not only affect Britain. The OECD downgraded the forecasts of several major economies because the conflict involving Israel, the United States and Iran.
This year, global growth will remain steady at 2,9%. Inflation in the G20 could increase sharply, to 4% from an earlier estimate of 2.8%.
Politic Reactions in UK
UK officials acknowledge the risks. Rachel Reeves, the UK’s Chancellor stated that international instability would affect UK economics. However, she said current policies are helping to protect public finances as well as households.
Mel Stride, the shadow chancellor of the UK, criticised the government for its economic insufficiency. Liberal Democrats described the report also as an indication of the direction the economy is taking.
